With the passage of the CARES Act by Congress and its effective date of March 27, 2020 most focus in the media has been on the PPP loan program to keep small businesses afloat.
However, there have been several provisions in the bill that assists current Chapter 13 debtors in confirmed plans if they are affected by the impacts of COVID-19.
Additionally new debtors seeking to file Chapter 7 or Chapter 13 cases will receive the benefit of what is calculated in your income.
STIMULUS PAYMENTS ARE NOT COUNTED AS CURRENT MONTHLY INCOME
First the CARES Act excludes Corona virus related payments from the definition of disposable income. Additionally, those payments are not counted as “disposable income” for the purpose of Chapter 13, thereby lowering the income used to calculate the required length of the plan and the percentage of debt required to be paid back to creditors.
So the federal stimulus check you are receiving or received within 6-months prior to filing a Chapter 7 Bankruptcy will not be calculated as “income”. If this were counted it could potentially place a debtor in position of not being eligible for filing a Chapter 7. Also, for debtors filing Chapter 13 these payments do not constitute “disposable income” which is required to be committed to your Chapter 13. This extends to debtors who already have a confirmed plan and new debtors who may be contemplating the filing of a Chapter 13 in the next 12 months.
EXISTING CHAPTER 13 DEBTORS WITH CONFIRMED PLANS AS OF MARCH 27, 2020 MAY EXTEND THE LENGTH OF THEIR PLANS FROM 60 MONTHS TO 84 MONTHS DUE TO COVID-19 RELATED HARDSHIPS
Previously, a Chapter 13 plan could not be confirmed or amended to allow for a duration greater than five years (60 months). Now any case filed in which the plan had been confirmed prior to March 27, 2020 is eligible to have the confirmed plan amended to a duration of up to 7 years (84 months) if the debtor is experiencing a “material financial hardship” due “directly or indirectly” to corona virus disease 2019 (COVID–19) pandemic.
Since most debtors are in Chapter 13 plans to pay mortgage arrearage, car payments, federal and state tax arrearage this ability will result in lowering your monthly payment by as much as 28%. This reduction in plan payments makes the plan much more affordable when debtors are faced with disruption in income and employment.
It is likely that the definition of the “directly or indirectly” will be very broad to include:
• Debtor has COVID-19
• Debtor or a family member has COVID-19
• Debtor’s Child is home from school due to COVID-19 closing
• Debtor’s business has closed
• Debtor’s business has cut work hours
• Debtor has been laid off
• Debtor has lost their job
• Any other financial issues related to the COVID-19 pandemic
These COVID-19 provisions will expire on March 27, 2021 unless Congress amends the law, so it is important that debtors act before that date. If you are a debtor in a current Chapter 13 and having trouble making your plan payments it is important that you contact your attorney so they can file a motion to ask the Court to modify your plan as soon as possible.
If you have been affected by COVID-19 or are having financial difficulties contact Urban & Burt, LTD. to get assistance with solving those problems. We are available via telephone or Zoom to meet with you to come up with a plan to address this issues. Contact us at: 708-381-5426 or schedule an appointment.